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Engineering, procurement and constructionFrom Wikipedia, the free encyclopedia

The EPC contractor (EPCC) agrees to deliver EPC , which is an acronym that stands for Engineering,Procurement and Construction . It is a common form of contracting arrangement within the construction industry.

Contents

1 Background2 Owner and contractor liabilities3 Global arena4 Cost certainty5 Owner responsibility6 See also7 References

Background

Under an EPC contract, the contractor designs the installation, procures the necessary materials and builds the project, either directly or by subcontracting part of the work. In some cases, the contractor carries the project risk for schedule as well as budget in return for a fixed price, called lump sum or LSTK depending on the agreed scopeof work. [1]

When the s cope is restri cted to engineering and procurement, this is referred to as an EP , E and P or E+Pcontract. T his is often d one in situations where the construction risk is too great for the contractor or when theowner doe s the construction.

The 'keys' to a commissioned plant are handed to the owner for an agreed amount, just as a builder hands the keysof a flat to the purchaser. (One should recognise that some EPC contracts terminate at Mechanical Completion but

before Commissioning while LSTK contracts always include Commissioning.) EPC is gaining importanceworldwide. It requires good understanding by the EPCC to return a profit. An owner decides for an EPC contractfor reasons that include:

Reduced stress for owner Single point of contact for owner simplifies communications.Ready availability of post-commissioning servicesEnsures quality and reduces practical issues faced in other waysOwner protected against changing prices for materials, labor, etc.Cost is known at the start of the project

Besides the plant siting, in an EPC contract the owner defines:

Scope and the specifications of the plant
http://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#Cost_certaintyhttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#Global_arenahttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#Owner_and_contractor_liabilitieshttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#cite_note-Loots_2007-1http://en.wikipedia.org/wiki/LSTKhttp://en.wikipedia.org/wiki/Lump_sumhttp://en.wikipedia.org/wiki/Fixed_pricehttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#Referenceshttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#See_alsohttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#Owner_responsibilityhttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#Cost_certaintyhttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#Global_arenahttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#Owner_and_contractor_liabilitieshttp://en.wikipedia.org/wiki/Engineering,_procurement_and_construction#Backgroundhttp://en.wikipedia.org/wiki/Constructionhttp://en.wikipedia.org/wiki/Procurementhttp://en.wikipedia.org/wiki/Engineeringhttp://en.wikipedia.org/wiki/Acronym


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QualityProject durationCost

The cost (the price to be paid to the EPCC) is negotiated and finalised and paid in mutually agreed installments.

Owner and contractor liabilities

Once an EPC contract is signed, the EPC contractor becomes liable for completing the project according to thetender conditions. The EPC contractor, in turn, may hire sub-contractors or sub-vendors to complete different

portions. Payment commensurate with the work completed (in addition to an advance) is normally preferred by acontractor.

Projects are more likely to succeed when the owner:

Defines guarantees wellDefines scope and quality very carefully

Defines milestones meticulouslyDefines LD/penalty clauses

Makes payment terms very specific

The contractor also has ways to improve project success:

Adopts similar terms and conditions as owner regarding quality, guarantee etc., for subcontracts/vendorsDo not keep terms open-endedCoordinate vigilantly to reduce chances of errors at site.

Global arena

An EPC contract is a complex agreement. In a global context, EPC management is more complex. The EPCCmust have data and expertise in all the required fields. Some important areas are:

Local market conditions for materials and labour availability and capabilitiesLocal code, statutory etc., requirementsAvailability of local supervisory personnelAvailability of local engineering services

Local and global subcontractor experience and performance

Cost certainty

One main reason an owner may prefer an EPC arrangement is "certainty of cost". An EPC contract binds theContractor to deliver the project at a firm, predetermined price regardless of any increase in costs that theContractor may incur after the contract is signed. However, changes to specifications initiated by the owner (better finishes for example) may be incorporated through a "change order". Here, the owner and the Contractor negotiatethe price to make the changes and these changes/prices are recorded in the change order document.
http://en.wikipedia.org/wiki/Liquidated_damageshttp://en.wikipedia.org/wiki/Tender_offer


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Owner responsibility

To ensure quality, the owner must select an experienced EPC contractor. A third-party or in-house consultant canverify the design of major structures and inspect the main equipment installations.

Changes in scope of work can affect project schedule, cost and risk. Such changes are the responsibility of theowner.

See also

EPCMEPCILSTK

References

1. ^ Loots, Phil; Nick Henchie (2007-11). "Worlds Apart: EPC and EPCM Contracts:Risk issues and allocation"(http://www1.fidic.org/resources/contracts/epcm_loots_2007.pdf) (PDF). Mayer Brown.http://www1.fidic.org/resources/contracts/epcm_loots_2007.pdf. Retrieved 2009-04-15.

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